Q: We had a renter in our home who recently moved out. There is an option in the lease that stated “First Month’s Rent Paid in Advance,” which we collected when she moved in. Then, by accident, we checked the box stating “Last Month’s Rent Paid in Advance” instead of the box stating “Security Deposit Paid in Advance,” which we also collected when she moved in.

Both the tenant and I were under the same assumption that the last month’s rent would be used as a security deposit. It was discussed verbally prior to her moving in and again verbally before she moved out. The renter paid her last month’s rent to us separately and vacated the property. Now she is trying to claim there was never a security deposit. We did discuss with her all along that the money she paid at the start of her tenancy was a security deposit, and she verbally agreed. We have a very nice newer home we rented to her, so there is no way we would ever take on a renter without a deposit. When we gave her the notice to vacate the property, we verbally communicated to her that her entire deposit would be returned if nothing was damaged and if the unit was returned to its condition at move-in. Our tenant verbally agreed to the terms. Then she just picked up and left when her lease was up, and left the home in a mess. There is damage to walls, broken door locks and carpet stains. Some permanent fixtures, such as a television mount, have been removed.

It took five days of scrubbing and cleaning to get the place back in shape to rent it out again. The tenant recently provided us with her forwarding address, after several attempts to reach her. She continues to claim she did not have a security deposit, but that it was only last month’s rent. The lease does say to return the home to its original condition and not to remove any attached fixtures. I have photos and receipts of the items repaired. Can we use the “last month’s rent” as the damage deposit even though that is not how it is written in the lease?

 

A: In essence, you are holding funds that the tenant paid to you as either a security deposit or as rent. While there is nothing definitive as to how you should proceed, I think that you may treat the money paid as “last month’s rent” at the inception of the lease as her security deposit. First, you say that both parties intended that the money be paid as a security deposit. Second, the tenant paid last month’s rent when it was due during the last month, which she wouldn’t have done if she believed she had already paid it.

Finally, every party to a business transaction, unless prohibited by the written contract, has the right of set-off, which is the right to deduct amounts owed to the party holding money prior to giving a refund. Most leases do not preclude a landlord from exercising their right to pursue set-off, so I think that you are safe treating the amount you are holding as a security deposit.

Minnesota law states that, within 21 days, the landlord should return the deposit to the tenant or send the tenant a letter stating the specific reason for withholding any portion of the deposit. The landlord may withhold from the deposit only amounts reasonably necessary to cover rent owed, money owed to the landlord based on an agreement, or to restore the property to its condition at the start of the tenancy, excluding ordinary wear and tear.

You should send your tenant a letter outlining the damages, as well as the amounts withheld. You should indicate in the letter that you are holding this money, that both parties intended it to be a security deposit, and that you are treating it as such; but if it is later determined not to be a security deposit, you are then exercising your right to set-off amounts owed to you prior to refunding the money. Make sure that you send the letter and any amounts owed within 21 days of the termination of the lease.

 

Kelly Klein is a Minneapolis attorney. Participation in this column does not create an attorney/client relationship with Klein. Do not rely on advice in this column for legal opinions. Consult an attorney regarding your particular issues. E-mail renting questions to kklein@kleinpa.com, or write to Kelly Klein c/o Star Tribune, 650 3rd Av. S., Minneapolis, MN 55488. Information provided by readers is not confidential.